Wednesday, March 20, 2013

General Equilibrium, Cont.

Okay, I have answered a lot of questions about my post on the Portland Economy because I was insufficiently clear.  My apologies.  

I wasn't trying to denigrate the work nor do I think the conclusions about education spending are incorrect (though I think you can't really logically connect the dots except to say that the value of the marginal product is higher in some fields so we can try for more of them).

No my point was simply this: Wages are prices. Prices are set in equilibrium.  If Portland has too many of one type, wages will be depressed and the incentive for more to come or be created is less.  If Portland has too few of another type, wages will be elevated and the incentive for more to come and more to be created will increase.  That is how markets work.  So don't fixate on types.

To me the story is a growth story: let's focus on education and try and create a better economy in the future.  We can try and facilitate the growth of certain sectors by producing lots of one type locally but out power to engineer these things is limited.  So for me, let's just focus on education, research and a government/physical/policy infrastructure that will help promote growth.

I also made a point about the endogeneity of policy: If tax revenue is what you want you can't just say increased incomes will result in higher revenues because policy is not static - people vote.

Which in the end is ALL to say, that trying to engineer these things is very hard so let's focus on the fundamentals.

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